Shares of Japan's Otsuka Holdings rose about 5% in their debut on Wednesday after the drug firm priced its record $2.4 billion initial public offering conservatively and with investors encouraged by an upswing in the broader market.

Otsuka's shares first traded at 2,170 yen and stood at 2,193 yen by the end of the morning, above the 2,100 yen per share price for its IPO, the largest on record globally for a pharmaceuticals firm.

The benchmark Nikkei average was flat.

Otsuka, Japan's No.2 drug maker by sales after industry leader Takeda Pharmaceutical, had priced its shares at the lower end of a tentative range, reflecting investor worries about its heavy reliance on Abilify, a schizophrenia drug that generates a third of its sales and is due to lose patent protection in 2015.

"Otsuka's profit source should be solid until 2015 when Abilify's patent protection ends, but many see uncertainty after that," said Yoshinori Ogawa, an analyst at financial market research and information provider FISCO.

"Developing the next hit product in the coming five years won't be easy."

Otsuka sold a total of 198.6 billion yen ($2.4 billion) worth of shares, exceeding Merck KGaA's $1.7 billion 1995 IPO, previously the largest pharmaceuticals IPO.

Japan's IPO market grew almost 25-fold to $11.5 billion this year but the figure was inflated by the IPO of a life insurer Dai-ichi Life Insurance.
Despite the higher volume, Japan's IPO market has been mostly seen as disappointing, while in Singapore and Hong Kong newly listed companies are generating concern that a huge bubble is being formed.

Last week, two Chinese Internet companies - Youku.com and Dangdang - shocked the market when they jumped a whopping 161% and 87 percent, respectively, on their U.S. listing debuts.

Otsuka's debut was boosted by a recently bullish trend for Japanese shares. The Nikkei closed at a seven-month high on Tuesday and has risen more than 12% over the past six weeks as foreign funds step up buying of lagging Tokyo shares.

Since Otsuka announced its intention to list on Nov. 12 the Nikkei has gained 6%, and has risen 1.4% since it set its IPO price on Dec. 6.
Otsuka's rise on Wednesday is positive news for investors as it came after the disappointment of a recent IPO.

Shares of cosmetics maker Pola Orbis Holdings, which debuted on Dec. 10, dipped below their IPO price of 1,800 yen on the first day and still traded below the offer price on Wednesday.

In April, Dai-ichi Life Insurance, Japan's second-largest life insurer, went public with Japan's largest IPO worth $11 billion.

The shares, which were also cautiously priced, have been trading below the offer price for almost six months.

Otsuka said it expects net profit to grow 18% to 79.7 billion yen in the year to March 2011 on revenue of 1.14 trillion yen, up 5%.

At a share price of 2,195 yen, Otsuka, which also sells sports drinks, instant meals and skincare products, would still trade at a discount compared with its peers.

Otsuka was trading at 15.4 times its earnings forecast compared with 17 times average of Takeda, Astellas Pharma and Daiichi Sankyo, according to data compiled by Thomson Reuters.

But market participants see other companies as more attractive than Otsuka even though the IPO market remains sluggish.

"Looking at long-term growth prospects, there are many more attractive companies on the Tokyo market," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management, adding he was not surprised at the opening jump given its conservative IPO pricing.

Among this year's new entrants to the public market, pet insurer Anicom Holdings and Papyless, an operator of electronic book stores, were most preferred as they are in clearly defined niches.

Anicom traded at 2,970 yen on Wednesday, almost 50% above its IPO price, while Papyless was at 4,315 yen, 60% above its IPO price.
Nomura Holdings, UBS AG and Morgan Stanley arranged the Otsuka IPO.